Are you about to overpay SDLT on your next property investment purchase? By property tax specialist Simon Misiewicz FCCA, MBA
Guest Houses / Bed & Breakfast properties e are seeing an increasing number of clients that are simply overpaying Stamp Duty Land Tax (SDLT) when they are buying property investments. Here are some examples of when SDLT banded rates may be decreased and the 3% SDLT higher rates removed altogether.
Buying a property that is uninhabitable Thanks to the PN Bewley Ltd v HMRC TC06951 case, we now know that the 3% SDLT higher rate does not apply to properties that are uninhabitable. PN Bewley Ltd purchased a bungalow described as derelict and in poor internal condition for £200,000. They filed the land-transaction return, self-assessed the tax due and paid it, totalling £1,500, applying the rates for residential property contained in Table A in FA 2003, s. 55(1B). HMRC opened an enquiry into the return and revised the tax payable to £7,500 on the grounds that the transaction was one subject to the higher rates of SDLT as falling within FA 2003, Sch. 4ZA, para. 4.
PN Bewley Ltd appealed this HMRC decision at court and expressed that due to its state of extreme dilapidation, the bungalow was neither used nor suitable for use as a dwelling. By reference to FA 2003, Sch. 4ZA, para. 18(2)(a), they said it did not count as a ‘dwelling’, the consequence being that the transaction in question was not a ‘higherrates transaction’ for the purposes of Sch. 4ZA. They won!
“In addition to the saving of the 3% SDLT higher rate there is a VAT saving too when you commence works on the building in question.” You can have the VAT rate of 20% reduced to just 5% on the direct materials and labour costs you incur when you refurbish a property that has been empty for more than two years. Check out VAT notice 708 for more details.
Holiday lets and serviced accommodation will have residential rates of SDLT and will be subject to the 3% SDLT higher rate. Cases involving bed and breakfast (B&B) establishments, or guest houses, will be treated on their merits. However, a B&B establishment which has bathing facilities, telephone lines, etc installed in each room and is available all year round would be considered non-residential, in line with s.116(3)(f) which states that “a hotel or inn or similar establishment” is not used as a dwelling. As such the non-residential rates of SDLT will apply and the 3% SDLT higher rate will also be ignored. Many solicitors using the standard HMRC SDLT calculator could end up using the residential rates and include the 3% SDLT higher rate in error.
Our key point from the above though remains that there is a danger a solicitor could calculate the 3% SDLT higher rate when preparing the paperwork on dilapidated properties and you then overpay SDLT on similar purchases to the PN Bewley case above.
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